Kenya and Uganda remained the highest FDI recipients in the region, and among the top 10 in Africa in 2015. PHOTO | TEA GRAPHIC
By CHRISTABEL LIGAMI
In Summary
Foreign direct investments in East Africa increased last
year, buoyed by the reduced cost of doing business and natural resource
discoveries.
The region received more than half of new investments in
sub-Saharan Africa in 2015, according to the World Bank’s Migration and
Remittances Factbook 2016.
Last year, remittances to the EAC hit $3.054 billion, up from
$2.9 billion in 2014. This was about 0.5 per cent of the global inflows
of $601 billion, up from 0.4 per cent of $593.9 billion in 2014.
The region received 8.7 per cent of $34.8 billion invested in
sub-Saharan Africa in 2015, up from 8.4 per cent of $34.5 billion the
previous year.
According to Scholastica Odhiambo a lecturer at the School of
Business and Economics at Maseno University, the EAC has improved in the
ease of doing business rankings, making it easier for investors to set
up businesses in its member countries.
“The number of procedures and processes of setting up a company
has come down, and this is encouraging investors to set up businesses in
the region,” said Ms Odhiambo.
“The skilled human resource base in Kenya and Uganda is a
contributing factor to the increased FDI, because they adapt easily to
new innovations,” she added.
Kenya and Uganda remained the highest FDI recipients in the region, and among the top 10 in Africa in 2015.
Kenya came in at position four in remittance recipients in
Africa in 2015, behind Nigeria, Ghana and Senegal, and Uganda was at
position six after South Africa, and ahead of Mali, Ethiopia, Liberia
and Sudan.
Kenya received $1.6 billion in remittances in 2015, while
Uganda’s remittance for 2015 were $900 million. Tanzania, Rwanda and
Burundi received $400 million, $130 million, and $50 million
respectively.
Improved reforms
The World Bank’s Ease of Doing Business 2015 report showed that
the EAC has improved its business regulatory reforms, the ease of cred
The insurance, banking and ICT sectors are expected to do well
next year, helped by improving economies predicted to grow at an average
of 6 per cent per annum.
International companies and equity funds will be seeking to
venture into the region or expand operations through partnerships, while
regional and local companies will look for stable capital bases through
partnerships.
“The FDI flow in the world has slowed down because tiger
economies like China and Brazil have reached a saddle point, where there
is little innovation and no more cheap labour,” Ms Odhiambo said.
“FDI is expected to grow in Africa because of more discoveries of natural resources,” she added.
Of the $601 billion in remittances for 2015, developing
countries are estimated to have received about $441 billion, nearly
three times the amount of official development assistance.
“At more than three times the size of development aid,
international migrants’ remittances provide a lifeline for millions of
households in developing countries. In addition, migrants hold more than
$500 billion in annual savings. Remittances and migrant savings offer a
substantial source of financing for development projects that can
improve lives and livelihoods in developing countries,” said Dilip
Ratha, co-author of the Factbook.
The actual amount of remittances, including unrecorded flows
through formal and informal channels, is believed to be significantly
larger.
“FDI in the region remains important since government budgets
still depend on corporates in other countries for their funding,” said
Samuel Nyandemo, an economist at the University of Nairobi.
“EAC governments need to create a conducive investment
environment for foreign investors. Lack of infrastructure and volatile
investment regulation is to blame for the slow growth in foreign direct
investment. The EAC partner states need to address issues of too many
bureaucratic procedures for foreign investors to start up a business, as
well as high taxes.
“Non-traditional investors such as private equity will continue
to play a greater role, and intra-EAC countries’ FDI will continue to
rise,” said Mr Nyandemo.
The use of public-private partnerships to supply public services
such as electricity, gas and water is a good opportunity for investors,
he added.
The US was the largest remittance source country, with an
estimated $56 billion in outward flows in 2014, followed by Saudi Arabia
at $37 billion, and Russia at $33 billion.
“It is important for the EAC to retain its trade links with the
US and Europe, and develop those emerging from the East,” Mr Nyandemo
said.
it
access, administration procedures for starting business, and
infrastructure reforms for investors.
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